Suggested Lesson Plan to use with this Worksheet
This is an introductory lesson and worksheet
regarding saving for retirement. Since saving for retirement
requires an understanding of many different investment principles,
it is not practical to try to cover everything in one lesson.
Use this lesson to build an understanding of why it is important
to start saving early for retirement, and the importance of
setting long term saving goals. See our other investment and money categories for other background
material.
Key Concepts to understand:
Short and Long-term saving
Importance of saving for retirement
Compound Interest
Other important concepts:
Inflation
Return on investment
How much will one need at retirement
Introduction:
People need to save for retirement so that way
they will have a source of income in their later years of life. Saving for retirement is no simple matter.
How much do you invest, where do you invest it, how much money
will you need when you retire, are just a few of the questions you need
to ask yourself.
Begin this lesson with a class discussion about
retirement, and saving for retirement.
Questions to ask for discussion:
Why is it important to save for retirement?
When do you plan on retiring?
Why is it better to start early, rather than
later?
Saving for retirement is one of the many
different things we must save for. What else might we need
to spend many years saving for?
More advanced questions include:
How much money will you need at retirement,
compared to what you need now?
How will inflation change how much they will
need?
Where should one invest their retirement
savings?
Will others be contributing to your retirement
savings? This includes Social Security, and employers
pension plan, 401K plans, etc.
Saving provides a way for us to achieve our
financial goals. We can think about saving as short-term and
long term.
Short and long-term goals. Teach students to distinguish between
short-term and long-term goals. Investing is for
achieving long-term goals, such as saving for retirement, buying a
car, buying a house, or saving for college. Saving for
retirement is probably one of the longer saving goals you will
have in your lifetime.
There are many things one needs to think about
regarding saving for retirement. How much you will need, how
much to save, how to invest are a few of the questions.
Also, two other important factors are taxes and inflation, both of
which will reduce the value of your investments.
Compound Interest. A benefit of
investing is getting compound interest, or money on the money you
earn. See our other lessons specific to compound interest.
Return on Investment. How much
money you will have for long-term savings for things such as
retirement will depend on your return on investment, or the rate
of return your savings will earn. See our other lessons
specific to return on investment for more material on this
subject.
Inflation makes saving for retirement
even more complex. Inflation will have a large impact on how
much money will be needed for retirement. If the interest
earned, or return on investment is not greater than the inflation
rate, then more money will be needed to be saved. See our
other categories on inflation for more lessons on this subject.
How much you will need for retirement.
There is no correct amount, however, some recommend having 80%
of your pre-retirement income to maintain your standard of living.
This reflects that some of your pre-retirement expenses, such as
work expenses, will be less after retirement.
A more difficult question is how much money you
need to save. The earlier you start, the more you save, and
the better investment returns you achieve with your money, then
the more money you will have at retirement.
Vocabulary: Return on investment (ROI),
saving, investing, stocks, bonds, mutual funds, real estate,
long-term goals, retirement, IRA.
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